The occupiers’ activity started recovering in the second half of 2021 in the CEE capitals: total take-up increased by 16% compared to 2020, but it was still 23% lower than in the record year 2019. New supply stayed strong in Warsaw and Bucharest throughout 2021, leading to increasing vacancy rates, while the rest of the CEE capitals have seen much lower construction activity. Headline rents kept stable in the whole region, except Prague, but looking ahead, a gradual growth is expected due to rising construction and fit-out costs.
The industrial market continues to power ahead in the current market environment. Retail transformation, the rapid expansion of e-commerce and a focus on diversifying global locations and minimizing the risk of disruptions to distribution chains are the key drivers of demand for warehouse space that continue to fuel the boom in the industrial sector across the CEE region.
At the end of 2021, there were more than 46 million sq m of modern industrial and warehouse space in the CEE; about half of that (52%) in Poland. The industrial market continues to develop fast in the region: about 12.4 million sq m of new space were completed in the last three years, and 4.7 million sq m were added to the market in 2021. Almost 7 million sq m are currently under construction—about a third of that built on a speculative basis, demonstrating a good condition of the markets seen as less risky for the investors than in the past decade.
Development activity in CEE retail markets focuses on redevelopment and extensions of existing shopping centres and the development of smaller, convenient retail schemes in regional towns. Retail sales recovered at the end of 2021 and reached pre-pandemic levels in most places, except those relying on tourism, such as city centres and high streets. On the other hand, footfall stays behind levels seen before the outbreak of Covid-19. Rental levels kept relatively stable, but a 5–10% increase is expected on average, pushed by the high inflation in the region. The central European region is still attracting new brands, which entered the markets in 2021, both luxury brands and discount retailers.
In 2021, commercial property investment volumes in CEE continued to trend upwards, increasing by 6.9% in 2020. However, they remained 15% below the five-year rolling average. Industrial and office investment activity predominated. We saw considerable evidence of price improvements with yield compression in all segments, especially in the industrial sector, where the price growth was almost 20%.
Transactions in Poland confirm the fact that pan-European investors are targeting CEE. Prices reflect the industrial rental growth in the Czech Republic, and there are indications that this trend applies to Poland. Office investment demand remained stable across the CEE region, albeit with the market failing to offer an ample supply of the “perfect product”. We expect to see more core plus transactions in 2022 and higher volumes, driven by Poland’s Warsaw and regional city markets. Retail is now showing signs of greater liquidity across CEE.
HOTEL MARKET (H2/2020)
The global hotel sector had undoubtedly faced serious challenges in 2020. Hotels in the CEE were no exception, with average revenues per room down by about 80% across the CEE-6 capitals (Bratislava, Bucharest, Budapest, Prague, Sofia, Warsaw). Unsurprisingly, transaction activity in the region declined significantly, with transaction volume falling by nearly 75%, as many deals were put on hold or withdrawn. However, little distress has yet been seen on the market, buoyed by government support and loan moratoriums. Conversely, investors have been awaiting greater visibility on the market recovery before making commitments. As vaccination rollouts continue and with the market showing signs of optimism around summertime, hotel performance and transaction activity is expected to pick up towards the latter half of the year.